While there have been a number of pieces of late taking shots at what is called Modern Monetary Theory (MMT), I have yet to read one that has been on target. It appears that there is a great deal of confusion out there regarding what it's about. I want to try to fix that.

Actually, this set of economic concepts has been around for quite a while, but it has been receiving extra attention of late because some politicians have been citing it in support of programs they would like to pursue. Indeed, there has been a veritable explosion of coverage. Just type “modern monetary theory” into your Google news search window and you’ll see what I mean.

As someone who has been a professional economist for over thirty years, I am finding the level of media interest in an economic theory astounding. I can’t remember anything else quite like it. I guess maybe Supply Side Economics might qualify, but that was never more than a simple statement about incentives. MMT, on the other hand, covers federal government budgeting, central bank behavior, inflation, employment, and more. That outlets ranging from the Wall Street Journal to HuffPost are diving into the debate is fascinating and, I think, extremely encouraging.

Well, mostly encouraging. One problem is that any time something complicated is discussed in the public arena, it necessarily gets oversimplified by both believers and detractors. Articles in professional journals, where authors take pains to carefully explain concepts and offer logical and empirical support for their theories, run 5000 to 10,000 words. More complex ideas laid out in books obviously take much longer. But your typical Op Ed or blog post is closer to 750 words. It is absolutely impossible to adequately explain a theory of any import in that space. This is especially true when that theory flies in the face of conventional wisdom and asks the reader to not only learn a new idea, but stop believing an old one. This is precisely the case with MMT.

It is therefore of little surprise that there has been so much contention regarding a set of ideas that should not be very controversial at all. They end up being offered here and there in piecemeal, making it difficult to get the broader concepts across even to the curious and open-minded (let alone those who are predisposed to disagree).

What I would really love to do right now is give you a complete and comprehensive explanation of what MMT is–of course, that’s impossible for all the reasons suggested above (heck, I’m already at almost 400 words)! So, while I will offer some helpful links later, let me just focus here on a few of the ideas attracting the most attention. In fact, let’s make a game of it!

True or False: Does MMT actually say this?

Three things before we get started. First, economics is about policy and policy is intended to solve a problem. The problem foremost in the mind of MMT economists is unemployment. Their goal is to make sure that everyone who wants a job, has a job and MMT’s path to ensuring that goes through the public sector (because in the private sector, labor is a cost to be minimized). Second, the aspects of MMT that seem to draw the most flak are not unique to them. I have many colleagues who do not call themselves MMT economists but who believe these very same things. This is not to say that MMT does not make its own unique contributions. Rather, the point I am trying to make is that it is hardly radical, a cult, or "a load of old tosh" as some articles have argued. Third and last, I’m basing what I say below on my knowledge of MMT scholarly research, not on op eds and blog posts. I have known the economists who are at the forefront of MMT for decades and I know their work. I actually don’t even agree with all of it. But, ironically, on those issues that have proved to be the most controversial, I am with them 100%.

Now on to the game!

Does MMT actually say this???

1. The federal government can print its own money.

TRUE! The reason they say it is quite simple: it can. Not just as an emergency measure, but as something they already do every single day. Heck, the private sector creates money, too, as I explained last week. This isn’t a theory, it’s a legal fact. Period.

2. The federal government doesn’t have to pay back the debt.

FALSE. I don’t know anyone who has ever said that, probably because it is not true. Of course they have to pay the individual Treasury Bills when they mature, and they do. There is no reason, however, that they cannot do what every household and business in America can also do, and that is subsequently take on new debt. Nor must its level of debt ever be reduced to zero any more than Exxon’s or CitiBank’s.

3. The federal government can’t be forced into bankruptcy.

Another TRUE and again simply because, well, it's true. The US cannot be forced to default in debt denominated in currency it is allowed to issue. Just as with item #1, this is not a theory, it’s a fact of the law.

4. We can afford any social program we want.

FALSE. I don’t know a single, solitary MMT scholar who has ever argued this. Of course not. Money may not be scarce (in either the private or public sectors), but resources absolutely are. If we have the resources, money can be created to use them. If we don’t, then money is irrelevant. The question is never, "Do we have enough money for a border wall, free college, or universal health care?" It’s, "Do we have the resources?" This is absolutely, positively central to MMT and anyone who says otherwise is either ignorant or deliberately misstating the facts.

5. Financing the deficit by printing money can’t cause inflation.

FALSE. Nope, they didn’t say this either. If the economy is at full employment and we continue to stimulate demand, then, regardless of how we finance it, of course prices are inflated. Supply cannot keep up with demand. That was precisely our problem in WWII. With unemployment around 2%, we spent in massive deficit and had to introduce rationing and price controls. Every MMT scholar is well aware of this and it has been mentioned many times.

6. Deficits don’t matter.

WHAT? That’s such a hollow statement that no MMT economist would ever utter it because it doesn’t even mean anything. Matter how? Matter in that it will cause us to go bankrupt? In that sense, no, it doesn’t matter (see #2). In the sense that it can’t cause inflation? Then it does matter (#5). In the sense that any kind of deficit spending is helpful? Nope. Some of it is a waste of time in that it never really gets to the policy issue mentioned above: unemployment. Deficits DO matter about some things and they DON'T matter about others.

I’m now over 1000 words so I had better cut it off. My overall point is this: I have yet to read one of these hit jobs on MMT that truly attacked something MMT research argues. Piece after piece that I read in doing the background for this made false claims, confused MMT with other theories, or ignored basic economic principles in their attacks.

Perhaps the biggest irony of all is that we already basically follow MMT-consistent policies when it comes to things like wars. But our own citizens? Sorry, we can't afford that!

Finally, here is my 2300-word piece that Forbes was kind enough to accept almost eight years ago. That’s the absolute shortest I thought I could get the ideas across. Even then, it leaves a lot out. The Big Danger In Cutting The Deficit